CALIFORNIA ATTORNEY'S FEES

Fee Clause Interpretation, Section 1717: Post-Arbitration Fee Request Denied Because Contract For Which Entitlement Sought Was Never Submitted For Judicial Review

Myriads Of Other Bases For Fee Entitlement, First Introduced On Appeal, Rejected.

            If you are going to seek fee recovery, make sure you put forth all of your bases for fee entitlement at the trial court level. The fee claimant in Glass v. Veros Credit, LLC, Case No. G055257 (4^th Dist., Div. 3 April 30, 2019) (unpublished) learned this lesson the hard way.

           After winning an auto installment contract dispute in an arbitration and gaining a $170,294.50 fee recovery, the winning party sought post-arbitration fees of $17,204.50 for confirming the arbitration award. However, the winner only sought fees based on a contract, never providing it in lower court fee hearings. Both the trial and appellate courts rejected the fee request. Pure and simple, the failure to provide the contract was dispositive. Although winner had a lot of additional fee entitlement bases on appeal, the appellate court thought it unfair to resolve alternate theories never advanced below and to make the appellate court engage in “new” adjudications on appeal. Justice Goethals was the author of the 3-0 opinion.

Costs, Fee Clause Interpretation, Homeowner Associations, Section 1717: Trial Court Properly Denied Fee Recovery To Prevailing Defendants Under Davis-Stirling Act Or Civil Code Section 1717 And Properly Struck The Costs Memorandum

Action Was Based On Tort, Not CC&Rs; Fee Clause Did Not Reach Tort Claims Under Section 1717; And Defendants Failed To Apportion Costs As Between Themselves.

            In the fee area, you must have a solid fee entitlement basis and you usually have to apportion costs where there are several prevailing defendants rather than claim total costs without an appropriate allocation. Schuchmacher v. McDermott, Case No. B288130 (2d Dist., Div. 3 March 28, 2019) (unpublished) is a case where prevailing defendants obtained no fees and costs because they could not establish fee entitlement and did not apportion routine costs.

            Plaintiffs suffered an adverse summary judgment against an HOA’s general manager and its current directors (who were not directors when the main plaintiff owned the condo unit) in a tort action involving insurance fire proceeds. Prevailing defendants moved to recover attorney’s fees of $361,586 and filed to recover $ 27,290 in routine costs. The trial judge denied the fee motion and struck the costs memorandum.

            The 2/3 DCA affirmed. The problem for defendants was that the tort claims were not efforts to enforce governing HOA documents, so entitlement under Davis-Stirling Act’s Civil Code section 5975(c) was lacking. Civil Code section 1717 was of no help either, because the CC&R fee clauses were narrow and did not apply to the tort claims against a general manager or the current directors. With respect to striking the costs, that was no abuse of discretion because defendants claimed all litigation costs, without apportioning between plaintiffs as well as defendants.

Fee Clause Interpretation: Operating Agreement Fees Clause Only Applied To Arbitration Proceedings, Not Court Work

$207,350 Fee Recovery Went POOF! On Appeal.

            In Pasco v. MGK Consulting, Case No. B281144 et al. (2d Dist., Div. 2 March 27, 2019) (unpublished), defendants won a motion for judgment at the close of plaintiffs’ case based on lack of standing for two claims and eventually obtained judgment in their favor as to plaintiffs’ remaining claims. The trial judge awarded fees under Civil Code section 1717 to defendants based on an operating agreement fees clause. The total award was $207,350.

            That all went POOF! on appeal. The reason was simple: the fees clause only encompassed arbitration proceedings, not court litigation. Given that the defense prevailed in court (not arbitration), no fee recovery was contractually allowable.

Fee Clause Interpretation, Section 1717: $40,642 Contractual Fee Recovery Affirmed On Appeal

Storage Facilities Had A Clear Fee Entitlement Provision, With Another Provision Not Capping Them At All—With Reasonable Fees Being The Only Limitation.

            In Enjati v. Big Bear Moving, Inc., Case No. E068332 (4^th Dist., Div. 2 Mar. 13, 2019) (unpublished), defendants were awarded contractual attorney’s fees after prevailing at trial on a storage facility dispute. Defendants sought $47,292 in fees, but they were awarded $40,642 instead. Losing plaintiff appealed, to no avail. Plaintiff could not beat the fact that there was a fee entitlement contractual provision, which was not capped by another provision which only put a “reasonable fee” limitation generally applicable under Civil Code section 1717 anyway on fee recovery. Fee award affirmed.

Fee Clause Interpretation, Settlement: No Abuse of Discretion And No Error By Trial Court In Finding The Parties’ Settlement Agreement Valid And In Awarding Attorney Fees Of $83,340.22 To Defendants For Enforcement Of Settlement Agreement

Plaintiff Hit With Attorney Fees Provision In Valid Settlement Agreement After Unsuccessfully Attempting To Back Out

        In Martello v. Buck, Case No. B285001 (2d Dist., Div. 1 March 1, 2019) (unpublished), Plaintiff Doctor sued Defendants Patient husband and his wife for defamation, assault, and intentional infliction of emotional distress after Defendants expressed dissatisfaction with Plaintiff’s billing practices on the internet. Defendants filed a cross-complaint for malicious prosecution, claiming Plaintiff had pursued litigation to collect on medical “balance billing” that Plaintiff knew to be illegal as they alleged she had been ordered by the Dept. of Managed Health Care to cease and desist from balance billing her patients. Balance billing is the practice of charging patients for the amount of the bill not covered after the insurance company pays its obligation, and patient has paid his/her deductible, copays, etc. It is illegal in California.

        In the underlying case, Plaintiff Doctor had obtained a default judgment against Defendants for the unpaid balance of the medical bill, and had attempted to collect by forcing a sale of Defendants’ home. Defendants were able to obtain relief from the default judgment and avoid sale of their home.

        The parties settled their claims against each other after months of negotiations. However, Plaintiff changed later changed her mind and refused to enter the settlement agreement in court. Afterward, following a bifurcated trial, the trial court found the settlement agreement to be a valid contract and dismissed the case pursuant to the agreement. The trial court also awarded Defendants $83,340.22 in attorney fees, pursuant to the terms of the settlement agreement, for their efforts in enforcing the agreement. Plaintiff appealed.

        In considering Plaintiff’s arguments on appeal, the 2/1 DCA concluded that the trial court had properly held a trial to determine if a valid settlement agreement existed between the parties, and had not abused its discretion by admitting the parties’ confidential settlement communications into evidence to determine whether a binding agreement existed. The 2/1 DCA then turned to Plaintiff’s argument that the trial court erred in awarding attorney fees to Defendants because the settlement agreement provided attorney fees for the enforcement of the agreement – not to establish whether there was a settlement agreement. It found the purpose of determining whether the settlement agreement was valid was to determine whether it could be enforced against Plaintiff, and that the immediate consequence of the trial was enforcement of the agreement and dismissal of the case – therefore no error. The trial court had properly awarded attorney fees to Defendants for enforcement of the settlement agreement.

Fee Clause Interpretation: “Arising Out Of This Transaction” Language In Attorney-Client Engagement Letter Is Broad Enough To Allow Fee Recovery For Legal Malpractice And Contract Win By Former Law Firm Against Suing Former Client

Failure To Specify To Whom Fees Were Paid Was Not Fatal Either.

            In Juarez v. Law Firm of Higbee & Associates, Case No. G054016 (4^th Dist., Div. 3 Feb. 28, 2019) (unpublished), former law firm won a summary judgment against a former client who sued for legal malpractice and breach of the engagement contract after law firm represented client in a marital dissolution action. Law firm then moved for fees based upon a provision in the engagement agreement, which read as follows: ““VENUE & COSTS. Disputes arising out of this transaction shall be adjudicated in Orange County Superior Court in the State of California. Losing party to pay attorney’s fees and court costs.” The lower court awarded law firm $32,645.50 in fees, prompting an appeal by the former client.

            The Fourth District, Division 3 affirmed in an opinion authored by Justice Fybel.

            Client argued that the failure to define “transaction” meant that the fee clause did not apply and that the failure to specify to whom fees paid made the clause hopelessly ambiguous. Because contracts are to be construed as a whole and in order to not render language surplusage in nature, the 4/3 DCA determined that it was contextually clear that the losing party would pay fees to the prevailing party and that “transaction” encompassed the contractually agreed-upon services rendered under the engagement letter when wording throughout was considered.

Fee Clause Interpretation, Mediation: $331,385 Contractual Fee Award Affirmed Because Absence Of Parol Evidence Did Not Show Fees Clause In One Contract Had A Mediation Condition Precedent

Absence Of Parol Evidence/Reporter’s Transcript Sealed The Result.

            If you are going to argue that a fees clause in one contract also governs another contract between different parties, you better introduce parol evidence to prove it. The loser in a fee battle did not do that in Morales v. Thee Aguila, Inc., Case No. G055224 (4^th Dist., Div. 3 Jan. 25, 2019) (unpublished), much less provide a reporter’s transcript, translating to a loss on appeal.

            Appellant lost an attorney’s fees battle to the extent of a $331,385 exposure based on a two-page handwritten contract with a fees clause. However, appellant claimed that a different contract involving different parties had a mediation condition precedent to fee recovery which was not followed so as to overturn the fees award at issue. The problem here was essentially one of proof: appellant introduced no parol evidence and did not provide a reporter’s transcript of what was offered into evidence below. Given the lack of parol evidence, the objective rule of contractual interpretation applied. There was a provision saying that prior agreements were incorporated into the contract as between the parties; however, given that the fees clause in the second contract involved different parties, there could be no carry-over of the mediation requirement from the second contract. Fee award affirmed.

            Justice Goethals authored the 3-0 decision for the 4/3 DCA.

Fee Clause Interpretation, Section 1717: Defendant Prevailing In Easement Dispute Was Entitled To Contractual Fee Award

Easement Agreement Fees Clause Was Broad Enough To Allow For Fee Entitlement.

            In Stark v. Ortiz, Case No. A153680 (1^st Dist., Div. 5 Jan. 24, 2019) (unpublished), defendant won contractual fees in a neighboring landowner easement dispute against a plaintiff. The parties had an Easement Agreement with a fees clause encompassing “any legal action or proceeding arising out of or relating to” the Easement Agreement. The trial court found in favor of defendant on plaintiff’s complaint after defendant dismissed a cross-complaint. The lower court awarded all fees to defendant except for ones relating to the dismissed cross-complaint.

            Plaintiff’s appeal of the fee award was not successful. The fees clause was broad enough to encompass both the declaratory relief claim (for sure) and the intertwined tort claims brought by plaintiff, all of which involved the scope of the Easement Agreement.

Fee Clause Interpretation, Prevailing Party: $53,791.79 Fees/Costs Award To Tenant And Against Landlord Affirmed On Appeal

Fee Clause “Any Right” Language Allowed Tenant To Recover For Landlord’s Misrepresentations.

            Zhang v. Cheung, Case No. B282132 (2d Dist., Div. 7 Jan. 16, 2019) (unpublished) involved a situation where a landlord won only $16,200 in damages for breach of a lease, while tenant won $30,078.85 in damages from landlord for intentional misrepresentation and negligence. The lease had a fees clause providing recovery to prevailing litigant in situations “to enforce any provision of this lease or any right of either party hereto ….” The lower court awarded fees and costs of $53,791.79 to tenant as the prevailing party in the litigation. (The trial judge, while the matter was on appeal, vacated the fee award and then later reinstated it, with the appellate court only looking to the initial fee award given that the vacation order was void once the appeal was filed.)

            The 2/7 DCA upheld the fees/costs award. The “any right of either party” language was broad enough to encompass tenant’s victory on the misrepresentation/negligence claims. Because the jury awarded more to tenant than landlord, tenant was the successful party. Landlord then asked the appellate court to limit his liability to his equity in the property based on a lease limitations provision, but that only applied to any lease claims rather than the tort claims under which tenant was victorious.

Fee Clause Interpretation, Family Law: Husband’s Fees In Defeating Wife’s Orange County Action, Although Stipulated Judgment Entered In Los Angeles Family Law Court, Was Allowable Under Wording Of Stipulated Judgment Fees Clause

“Court Intervention” Language Not Limited To Just One Court, 2/1 DCA Concludes.

            In Pont v. Pont, Case No. B284064 (2d Dist., Div. 1 Dec. 20, 2018) (unpublished), ex-husband was awarded $90,000 in attorney’s fees and costs for defeating ex-wife’s claim that he siphoned off community assets in an Orange County action, after the parties had entered into a stipulated judgment with a fees clause in Los Angeles County family law court. The fees clause covered a prevailing party involved in a “court intervention . . . in connection [with the stipulated judgment].” Both the trial and appellate court had no difficulty concluding that husband’s Orange County victory qualified him as the prevailing party, not just limited to the Los Angeles County family law court producing the entry of the stipulated judgment. Husband obtained a dismissal at the demurrer stage, so that this certainly was a prevailing “win.” Finally, hourly rates ranging from $120-800 per hour for his attorneys was sustained as reasonable given this was a family law matter (although the lower court did note that the $800 mark was at the high range of fees for this type of matter).

Fee Clause Interpretation: Broad Settlement Agreement Fees Clause Allowed For Recovery Of Fees In Fraudulent Stripping Of Assets Case

$188,000, After About $86,000 Reduction, Was The Sustained Fee Award.

            In Langer’s Delicatessen, Inc. v. Sino Enterprises, Inc., Case No. B287333 (2d Dist., Div. 4 Nov. 28, 2018) (unpublished), plaintiff won an action for fraudulent stripping of assets by a defendant based on a prior judgment and a settlement agreement. The settlement agreement had a broadly worded fees clause such that the trial judge awarded $188,000, about $86,000 less than the requested amount. The fees clause was broadly worded such that it allowed for fee recovery, with the court not having to address the fact fee authorization is not discussed under California’s voidable transfer statute.

Fee Clause Interpretation, Reasonableness Of Fees: Appellant’s Failure To Discuss Fee Clause Entitlement Under Note Fees Clause And Failure To Provide Reporter’s Transcript (RT) Of Fee Hearing Doomed Merits Of Her Appeal

Absence Of RT Can Be Fatal Indeed, Meaning Inadequate Record On Appeal.

            Appellants need to address legal fee entitlement bases and provide a reporter’s transcript of a fee hearing when challenges are made to either the merits or the amount of fees awarded. We have posted many times about how appellate courts will rebuff fee award challenges where no reporter’s transcript is provided, something that the Second District, Division 5 is especially prone to do unless only legal issues are involved in the fee challenge. Vyas v. Berman, Case No. A149220 (1^st Dist., Div. 2 Sept. 27, 2018) (unpublished) follows that trend.

            Appellant argued that the post-judgment award of $46,820 in fees was in error. However, with respect to fee entitlement, she could not demonstrate any infirmity given the failure to discuss a promissory note fees provision which facially did allow for fee recovery to the prevailing party (appellant’s opponent below). On the claim that the amount of fees was excessive and unreasonable, appellant’s failure to provide a reporter’s transcript doomed the appeal based on the failure to present an adequate record for purposes of assessing this challenge. (Vo v. Las Virgenes Municipal Water Dist., 79 Cal.App.4^th 440, 447 (2000).)

Fee Clause Interpretation: $178,255 Fee Award Against Guarantor Reversed As A Matter Of Law

Reason Was That Guarantor Guaranteed Orally, Not Assuming The Fee Clause Liability Under The Guaranteed Note With A Written Fees Clause.

            In Khodagulyan v. Aminpour, Case No. B270330 (2d Dist., Div. 3 Sept. 6, 2018) (unpublished), a cross-complainant was found to be a prevailing party because he had incurred attorney’s fees to collect on a note as against cross-defendants found to have orally guaranteed the note. The lower court awarded cross-complainant $178,255 in fees, jointly and severally against the cross-defendants, based on the fees provision in the note.

            All of that fee recovery went POOF! on appeal.

            The reason for this reversal was that appealing parties only orally guaranteed the note payment amount, with nothing indicating that they agreed to pay the amount due under the note according to the terms of the note. Simply agreeing to orally guarantee payment did not mean the guarantors agreed also to pay other obligations under the note, including responsibility under the fees clause.

Deed Of Trust, Fee Clause Interpretation: Deed Of Trust Fees Clause Did Not Justify Recovery To Successful Litigant Really Suing For Real Estate Option To Purchase Agreement Lacking A Fees Clause

Deed Of Trust Fees Clause Was Not Broad Enough To Encompass Real Estate Option Dispute.

            We have somewhat, on a syllogistic basis, indicated how one can achieve success on a fee petition in past posts—and we may give more clues to follow in future posts.

However, the first element is FEE ENTITLEMENT. You need a statutory or contractual basis for fee recovery. On a contractual basis, this means a laser focus on the terms of the fees clause to determine if it captures the disputes on which a judgment or resolution was reached. The next case shows how a successful result under one agreement, without a fees clause, and under another agreement, with a fees clause, may not entitle one to fees depending on what agreement really governed the dispute. If the dispute was governed under an agreement without a fees clause, you are out of luck!

In New Life Oasis Church v. Central Korean Evangelical Church, Case No. B284456 (2d Dist., Div. 4 Aug. 20, 2018) (unpublished), there was a longstanding dispute between parties as to the ownership of a Koreatown church property in Los Angeles. Plaintiff ultimately won a judgment to enforce a lease option to buy defendants’ church property, although nothing in the lease option document had an attorney’s fees provision. However, plaintiff was given a trust deed to secure an option security deposit on the Koreatown property, which did not contain an attorney’s provision indicating that the trust deed trustor would “ . . . appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary [Plaintiff] or Trustee; and to pay all costs and expenses, including costs of evidence of title and attorney’s fees in a reasonable sum, in any action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed.” The trial judge found that this provision allowed the plaintiff to recover attorney’s fees of $285,025 against the defendants as the prevailing party.

The fee award was reversed as a matter of law by the appellate court upon review.

Nothing demonstrated that the two agreements were linked or incorporated by reference so as to justify a fee award based on a deed of trust fees clause which was divorced from plaintiff’s option agreement win. In fact, the reviewing court did place emphasis on punctuation marks in the written clause which influenced its decision.   (Dow v. Lassen Irrigation Co., 216 Cal.App.4^th 766, 783 (2013).) All of the punctuation and context of the trust deed provision showed it applied to narrow trust deed enforcement, not broader lease option concerns. Given the narrower scope of the DOT clause, fee recovery was not proper.

Fee Clause Interpretation: 4/3 DCA Reverses $9,000 Fee Recovery Against Estate’s Personal Representative/General Partner Who Was Not A Party To The Agreement With Fees Clause

Fee Clause Was Also Broad In Scope, But Nonsignatory Individuals Were Not Party To The Underlying Agreement.

            In Mayhew Plaza Woodland Hills II, LLC v. Kelsey, Case No. G054435 (4^th Dist., Div. 3 Aug. 6, 2018) (unpublished), plaintiff dismissed an individual defendant in his capacity as representative of an estate in an action alleging only tort claims, with the individual defendant later awarded $9,000 in attorney’s fees under a broad fees clause in a purchase agreement. The fees clause broadly stated: “In any litigation, arbitration, or other legal proceeding which may arise between any of the parties hereto, including Agent, the prevailing party shall be entitled to recover its costs, including costs of arbitration, and reasonable attorneys’ fees in addition to any other relief to which such party may be entitled.”

            The 4/3 DCA, in an opinion authored by Justice Bedsworth, reversed. The problem was that “Agent” was specifically defined to be a broker in the transaction. Another flaw was that none of the individuals named in the action were “parties,” as distinct from the signatories (such as a limited partnership). The general partner was not liable for fees simply because he signed a contract on behalf of a limited partnership. “Nothing in this agreement indicates that the parties intended an already wide-ranging fee provision would apply to anyone who happened to get swept up in litigation between the contracting parties.” (Slip Op., p. 9.) Similarly absent was any showing that the agreement was intended to benefit the general partner individual defendant. (Whiteside v. Tenet Healthcare Corp., 101 Cal.App.4^th 693, 709 (2002).)

Fee Clause Interpretation: Tenant/Assignee Under Lease Properly Awarded Partial Litigation Fees For Winning Contractual And Related Fraud Cross-Claims, But Properly Denied Fees Expended In Prevailing On Common Law Ejectment Cross-Claim

Lease Agreement At Issue Because Lease Term Had Expired; And, In Any Event, Ejectment Was Tort Claim Not Encompassed Within Narrower Fees Clause.

            Compton Commercial Development Renaissance Plaza v. Taco Bell Corp., Case No. B283393 (2d Dist., Div. 4 Aug. 1, 2018) (unpublished) was a case where landlord sued former tenant/assignee Taco Bell for breach of contract, fraud, and common law ejectment under a cross-complaint after Taco Bell assigned the lease to another (allegedly not doing so properly). The lease agreement had a narrow attorney’s fees clause, as relevant to the dispute at issue, applying to suits “to enforce” lease provisions or “for a declaration of rights hereunder.” Taco Bell obtained a demurrer on contract and fraud claims, for which fees were awarded to the tune of $47,700. However, the trial judge refused to award other fees incurred in obtaining summary judgment of the ejectment cross-claim. Taco Bell appealed the refusal to award fees on the ejectment cross-claim work.

            The landlord had the better side of this argument.

            The fees clause in the lease had narrow language, unlike more encompassing “arising out of” or “with respect to subject matter” language, which did not apply to tort claims. The ejectment claim did not qualify for fee recovery for two reasons: (1) the lease agreement was not in dispute because Taco Bell was not in possession (the lease term had undisputedly expired already) and it disclaimed any residual interest under the lease; and (2) the ejectment cross-claim sounded in tort, such that it was not within the ambit of the fees clause.

Fee Clause Interpretation: Joint Tenant Liable For $237,080 In Attorney’s Fees Where Another Joint Tenant Obtained $210,750 In Compensatory Dmgs. To Lease Premises Where Both Parties Signed Lease, And Contribution Rights Were Involved to Landlord

Narrow Lease Clause Applying Broadly To “Any Party” Encompassed Fee Exposure With Respect To Actions Between Joint Tenants.

           Sometimes small words make a difference in the interpretation of the scope of an attorney’s fees provision. In this instance, the words “any party” opened the door to fee exposure in a controversy between joint tenants with respect to a fire causing damages to the leased premises and damaging both of the tenants’ businesses operated from jointly leased premises.

            Shehadeh v. Altoh, Case No. C082993 (3d Dist. July 27, 2018) (unpublished) involved joint tenant lease with a broadly-worded fees clause which said “[i]f any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party . . . in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.” (This is the fees clause in the AIR Commercial Real Estate Association Standard Industrial/Commercial Single-Tenant Lease at the time, which was in 2008.) Of importance, two tenants—plaintiff and defendant in the litigation to follow—signed as tenants in a lease with a landlord, eventually dividing the space so that plaintiff operated an auto sales business on one part of the property while defendant operated an auto repair business on another part. A fire occurred, disrupting the sales business and destroying the repair business. Plaintiff joint tenant (sale business owner) sued defendant joint tenant (repair business owner) for negligence and premises liability, claiming the fire originated from the auto repair business. The trial court, after a bench trial, agreed and awarded plaintiff damages in the amount of $210,750. Prevailing plaintiff filed a motion for attorney’s fees based on the lease provision, requesting $253,780 in fees. The trial court awarded plaintiff $237,080 in fees, prompting an appeal by defendant claiming that the fees provision does not apply to disputes between joint tenants.

            The Third District affirmed the fee award. A big reason for the affirmance was the “any Party” language in the lease provision among joint tenants, especially given that the lease specifically delineated that a “Party” meant an individual Party in definitional language and given that the authority/multiple parties/execution provision supported a singular party as being a “Party” within the meaning of the lease. Joint tenants were obviously jointly and severally liable to the landlord, such that there were contribution rights for damages and joint tenants have duties amongst themselves under the lease, so the dispute was encompassed (not to mention the broad tort language in the fees clause). Although there was a separate sublease between the joint tenants with a narrower fees clause, nothing in the sublease indicated it displaced the lease joint tenancy provisions.

Fee Clause Interpretation: Plaintiff Recovering $1.3M Jury Verdict On Premises Liability Claim Against State Of Cal. Not Entitled To $1.2M In Requested Fees Based On Lease Clause As Claim Did Not Arise “Out Of The Execution Of The [Rental] Agreement"

Plaintiff Never Mentioned Lease Or Fee Recovery In The Premises Liability Suit Until After The Jury Win, With Appellate Court Agreeing With Trial Court’s Construction Of The Fees Clause.

            We get the feeling that the 1/2 DCA in Wright v. State of California, Case No. A150165 (1^st Dist., Div. 2 July 27, 2018) (unpublished) believed plaintiff somewhat was “pulling a fast one” by not even mentioning that the dispute over which he won a $1.3 million jury verdict really involved a lease with an attorney’s fees clause. As a result, it completely found the trial judge was “spot on” in concluding that the fees clause did not apply and denying an almost $1.2 million fee post-verdict fee request.

            The problem here was that plaintiff was suing for a premises liability stair trip outside of the premises he was renting from the State of California. He did not mention the lease in the complaint or prayer for recovery of fees. The trial judge decided that the fees clause was narrow, applying only to a dispute which had to “arise out of the execution of this agreement,” and characterizing the suit for one just like any public member would bring on a premises liability basis rather than a tenant suing under the lease. (Made all the more so because the lease defined the “premises” circumspectly as the house plaintiff was renting from the State.) Plaintiff tried to rely on a “common area” theory which was successful in Hemphill v. Wright Family, LLC, 234 Cal.App.4^th 911 (2015), but the lower court correctly found it distinguishable because the jury in the case at issue did not necessarily decide on that issue because the evidence was controverted. The indemnification clause in the lease did not confer fee entitlement because plaintiff’s motion did not rely on this clause and the indemnification clause did not speak to fees or expert costs at all.

            Here is the bottom line from the appellate panel in affirming the denial of fees: “Wright should not be permitted to bring a statutory tort claim, omit any mention of attorney fees or otherwise bring into play the lease agreement, and thus not risk being saddled with the State’s attorney fees if he lost at trial; and then, having won, subsequently contend that his claim was based on the lease.” (Slip Op., p. 15.)

Fee Clause Interpretation, Section 1717, Section 998: Overall Prevailing Party Not Entitled To Atty’s Fees On Contractual Claim Dismissed During Closing Argument, On Noncontractual Claims Under Narrow Fees Clause, Nor § 998 As Gen. Litigation Expenses

Result Was Affirmance Of $38,000 Fees Award On One Of Three Cases, But Affirming The Denial Of The Remaining $165,000 Total Request Based On Topical Analysis Above.

            Contreras v. Silla America, Inc., Case No. B283118 (2d Dist., Div. 3 July 17, 2018) (unpublished) involved a situation where a trial judge decided that an overall prevailing party was entitled to apportioned attorney’s fees of $38,000 in one of three cases, although denying the total fee request on all three cases coming to a total of about $165,000. Prevailing party—as appellant – wanted more, appealing, but he did not gain his wish.

            With respect to one case where he was a defendant, the appellant could not gain fees because the plaintiff dismissed the case during closing argument. Appellant was not happy, but the dismissal was proper because it was done before submission of the matter for decision so as to preclude fee recovery. In this respect, Division 3 agreed with the analysis of the Second District, Division 4 in Shapira v. Lifetech Resources, LLC, 22 Cal.App.5^th 429, 437 (2018) on the issue [reviewed in our April 20, 2018 post].

            However, not to give up on the Santisas point in the case where fees were denied, appellant argued that the causes of action were noncontractual in nature so as to fall outside of the contractual dismissal ban. No, that did not work. The fees provision only focused on collection actions following the buyer’s failure to pay for purchased goods, not containing any broad language to support an award of fees as it related to noncontractual claims.

            Finally, that brought everyone to the CCP § 998 argument that the rejected settlement offer allowed the offeror, like appellant, to recovery litigation expenses such as attorney’s fees. The Court of Appeal, eloquently, answered this way:   nice try. Section 998 does not provide for recovery of attorney’s fees as costs, unlike potential recovery of expert witness fees. “We are unaware of any case holding that Code of Civil Procedure section 998 authorizes a discretionary award of attorney’s fees as costs in the absence of some other statutory or contractual right to such fees.” (Slip Op., p. 14.)

Deeds Of Trust/Fee Clause Interpretation: Deed Of Trust Fees Clause Was Broadly Worded So As To Entitle Lender To Attorney’s Fees Award Against Borrower

$45,263.33 Was The Award After A Dismissal Based On Plaintiff Not Appearing At Trial.

            In Kleidman v. RFF Family Partnership, L.P., Case No. B268541 (2d Dist., Div. 4 July 10, 2018) (unpublished), plaintiff failed to appear at a scheduled trial such that his case against a lender was dismissed, a determination affirmed on appeal. The trial judge subsequently awarded lender $45,263.33 in attorney’s fees based on a fees clause in the deed of trust. Plaintiff challenged that determination, but the appellate court rejected it. In this case, the fees clause was broad, including “any action or actions … which may be brought … for the enforcement of any covenant or right in the Deed of Trust or any other Loan Document ….” Given that Civil Code section 1717 made it reciprocal in nature, the unilaterally-worded clause in favor of lender did not render it infirm.

            BLOG OBSERVATION—The result here contrasts with the opposite conclusion reached in some cases, where deed of trust fees clause confined the remedy to adding the fees to the loan balance and then requiring a foreclosure. You can find cases supporting fee denials on this basis in our home page category “Deeds of Trust.”

Fee Clause Interpretation: Telephone Leasing Defendant Not Entitled To Fees Against Plaintiff Successor Owners In Declaratory Relief Action Where Fee Clause Only Applied In Lease Between Defendant And Phone Provider

However, Defense Attorney’s Recordation Of Judgment Abstract Based On Including Fees As Costs Before Fee Motion Was Heard Troubled The Court Of Appeal, Which Ordered The Lien Removed.

            In Labertew v. Whiteley, Case No. C077751 (3d Dist. July 10, 2018) (unpublished), plaintiffs, successors to the original owner on land where there was telephone equipment leased to a phone provider, sued defendant original owner for declaratory relief, claiming that they were entitled to the lease cash flow under the phone equipment lease entered into by defendant and the phone provider. The lease had a fees clause between defendant and the phone provider. Defendant prevailed in plaintiff’s declaratory relief action. Defendant then sought fees from plaintiffs and her attorney filed an amended abstract of judgment against plaintiffs’ property for the amount of a costs judgment (but which included the amount of requested attorney’s fees as costs before the fee matter was adjudicated). The trial judge refused to award fees and ordered the abstract to be removed.

            The Third District affirmed. It decided the lease fees clause only related to defendant and the phone provider, not extending to any dispute for declaratory relief between defendant and a successor in interest to the property defendant formerly owned. It was even more troubled by the recordation of a judgment abstract for a yet-to-be adjudicated fee motion as part of the abstract, agreeing it was properly lifted and referring the matter to the State Bar for defense attorney’s “troubling” conduct.

Deeds Of Trust/Fee Clause Interpretation: Broadly Worded Trust Deed Fees Clause Allowed For Fee Recovery By Lienholder Under Second Loan Based On Both Contract And Tort Theories

“To Protect Lien” Under Deed Of Trust Fees Clause Was Viewed As Broad In Ambit.

            In Arefi v. JP Morgan Chase Bank, Case No. B263947 (2d Dist., Div. 7 July 2, 2018) (unpublished), a borrower brought various causes of action to set aside/cancel a trustee’s sale, to quiet title, and to obtain recovery under various statutory claims arising from an assigned lienholder’s nonjudicial foreclosure of a second loan. All of the claims were resolved against borrower, with the trial court subsequently granting attorney’s fees to lienholder under a broadly worded deed of trust fees clause allowing lender to recover fees “to protect its lien” under the second loan deed of trust.

            Borrower’s appeal on the merits and on the fees award did not succeed.

            Because the borrower’s causes of action were ones challenging the lien, the lienholder did vindicate a win to “protect its lien” under the deed of trust fees clause. Also, the broad fees clause covered both contract and tort claims such that it did not matter if some were other than “on the contract” under Civil Code section 1717.

Fee Clause Interpretation: Fee Recovery To Litigant Prevailing On Cross-Complaint With Mixed Tort/Contract Claims Properly Denied Because Fees Clause Only Related To More Narrow “Account” Issues

Litigant Failed To Show Fee Entitlement.

            Assuming that a fee motion is timely filed, the next big obstacle for a fee claimant is demonstrating – drum roll time! – fee entitlement. That obstacle was not cleared by appellant in Schneider v. Deam, Case No. A150027 (1^st Dist., Div. 2 May 29, 2018) (unpublished).

            There, appellant filed a limited action to recover $1,613 in unpaid fees, with the two retainer agreements having narrow fees clauses which stated: “In the event of legal proceedings as to any account, the prevailing party is entitled to attorneys’ fees.” Defendant ex-client filed an unlimited jurisdiction cross--complaint sounding in tort/contract and praying for damages in excess of $815,000. After the dismissal of the cross-complaint, plaintiff moved to recover $42,265.85 in legal fees under Civil Code section 1717 and the contractual fee agreement. The trial court said “no.”

            The appellate court agreed with the trial judge’s “no” assessment.

            There was an initial jurisdictional jumble to address. Plaintiff’s complaint had not been disposed of, but that “snag” did not matter because any judgment in the limited civil action would go through the superior court appellate division instead. The cross-complaint judgment was indeed final and appealable.

            On the merits, plaintiff failed to demonstrate how the narrow fees clause applied to the cross-complaint tort and contractual cross-claims. Simply skipping ahead to the Civil Code section 1717 “prevailing party” analysis did not remedy the failure to show a fees clause with a fee entitlement basis in the first instance.

Fee Clause Interpretation, Interpleader, Section 1717: Bank Winning Fee Award For Prosecuting Interpleader Cross-Complaint And Successfully Defending Against Plaintiff’s Complaint Reversed And Remanded

Appellate Court Offered Guidance, Including That No Section 1717 Adverse Fee Award On Plaintiff’s Complaint Could Be Granted On Grounds Advanced By Lender.

            Plaintiff octogenarian sued her lender on various theories stemming from lender’s failure to disburse timely insurance proceeds covering a fire loss.  In response to plaintiff’s Complaint, Lender filed an interpleader cross-complaint.  The trial judge sustained a demurrer to plaintiff’s complaint and discharged lender through the interpleader, later ordering $68,265 in attorney’s fees (the full request) to lender for prosecuting the interpleader and successfully defending against plaintiff’s complaint and ordered fees payable from the interplead insurance proceeds.

            Because the demurrer to plaintiff’s complaint should have been overruled, the fee award also was reversed, with remand guidance, in Rodriguez v. Banco Popular North America, Case No. B280489 (2d Dist., Div. 5 May 4, 2018) (unpublished). 

            The appellate court acknowledged that Lender, if eventually successful in the interpleader, is entitled to statutory fees (Code Civ. Proc., § 386.6(a)), but that it could locate no authority indicating that the section 1717 fees relating to plaintiff’s complaint could be paid out of interplead funds.  Beyond that, however, guidance was offered on remand.  In particular, Lender’s reliance on a deed of trust provision only allowed it to add attorney’s fees to the borrower’s loan, not seek an independent award of fees in a court action.  With respect to the note provision relied on by Lender, plaintiff did not sue under the note but relied on her contractual rights to disbursement of insurance proceeds, such that this ground could not be advanced as a basis for fee entitlement under section 1717. 

Allocation/Fee Clause Interpretation: $66,103 Fee Award Against Losing Plaintiff/Cross-Defendant Affirmed Based On Broad Fees Clause And Common Intersection of Complaint And Cross-Complaint Claims

Underlying Dispute Related To A Grading Of Dr. J’s 1972 Trading Card.

            This next case illustrates an interesting application of attorney’s fees principles we have seen in many cases to a dispute over grading of a Dr. J trading card.  Let’s get to it.

            In Knafo v. Collectors Universe, Inc., Case No. G055112 (4^th Dist., Div. 3 Apr. 30, 2018) (unpublished), plaintiff submitted a 1972 Julius Erving (Dr. J) trading card to defendant for grading in line with the terms of a written submission agreement, also referencing a guarantee by defendant.  The submission agreement contained a broad fees clause encompassing “any action to enforce the terms and condition of [the agreement] or otherwise arising under or with respect to [it].”  After defendant asked plaintiff to return the card based on an incorrect “Gem Mint 10” rating, plaintiff refused to return it, provoking a complaint by plaintiff to seek the full value of the incorrect grading and defendant filed a cross-complaint seeking to obtain a return of the card for the correct rating.  Defendant won on both counts, with the judgment requiring a return of the Dr. J card for correction of the Gem Mint 10 grading.  Then, defendant moved for fees under the broad contractual clause, with the trial judge granting $66,103 in fees.

            Plaintiff lost appeals of the merits judgment and the subsequent fee award.

         The problem here was that the defense pled the submission agreement, which encompassed the guarantee, as an affirmative defense to the complaint such that fees for both defending against the complaint and prosecuting the cross-complaint were covered and were interrelated in nature. 

            BLOG WELCOME—We note that this case was decided by Justice Goethals, who was recently appointed to the 4/3 DCA and is among some of first decisions on the appellate bench. 

Assignment, Deed Of Trust, Fee Clause Interpretation: Defendant Lender Entitled To Fee Award Under Deed Of Trust Fees Clause For Winning Conversion Claim Against Plaintiff’s Assignee

Fees Clause Was Broad Enough To Encompass Conversion Claim And Assignees Were “On The Hook.”

            In Sanchez v. El Monte Investments, LLC, Case No. B276423 (2d Dist., Div. 5 Mar. 27, 2018) (unpublished), former property owner sued her lender for conversion of certain insurance proceeds retained by the lender after fire damage to the property following a court order that lender was entitled to the proceeds.  Former owner eventually assigned her claim to her attorneys, who lost at trial and were ordered to pay lender’s attorney’s fees of $35,525 (out of a requested $42,350) under a deed of trust fees provision.  The fees clause obligated former property owner “to appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of [lender]; and to pay all costs and expenses, including … attorney’s fees in a reasonable sum, in any action or proceeding in which [lender] may appear, and in any suit brought by [lender] to foreclose this deed.” 

            Appellant law firm appealed, but the fee award stood.  The appellate court agreed that the conversion claim fell within the ambit of the broad deed of trust clause, and that the law firm as assignee had to bear the burdens as well as the benefits of the assignment (inclusive of the adverse fee award).

Costs, Fee Clause Interpretation, Section 1717: Successful Attorneys On Contract Claim Properly Granted Fees; Successful Plaintiff On Tort Claims Properly Denied Fees; And Plaintiff Improperly Denied Costs As Prevailing Party With Net Judgment In Malpra

Many Cross-Over Fees And Costs Issues Considered By Appellate Court In This One.

            In Davidson v. Southwick, Case No. E066978 (4^th Dist., Div. 2 Mar. 26, 2018) (unpublished), plaintiff client successfully won a malpractice action based on various torts but lost a contract claim against certain attorney parties, winning a compensatory jury verdict of $48,382.93.  On appeal, that judgment was reversed down to $4,804 on causation grounds.  The trial judge denied client any fees and costs, while awarding fees to the attorney parties under the retainer agreement and Civil Code section 1717.

            Plaintiff’s appeal of these rulings resulted in an appellate determination that she should have been awarded costs.

            With respect to the fee awards, the operative retainer agreement fee provision was narrow in scope, applying only to “an action or proceeding to enforce any provision of this [Retainer] Agreement.”  Because of this narrow breadth, client’s wins on tort claims were not “on the contract” under section 1717 (justifying a denial of fees), contrasted with attorneys’ winning on the contract claim so as to be entitled to fees (although the trial judge only awarded $10,000 out of a requested $77,800, apportioning fees such that the award only related to contractual work).

            However, plaintiff did win on the argument she was erroneously denied routine costs.  She was the prevailing party as far as a “net judgment,” and had filed a memorandum of costs (which, even if premature, was a procedural irregularity causing no prejudice to the other side).  Plaintiff was not entitled to expert witness fees in connection with her fee motion, because expert fees of this nature are not recognized as allowable costs.

Fee Clause Interpretation/Prevailing Party: Fifth District Reverses Costs Denial, Remands For Redo On Fee Clause Interpretation, And Reverses 128.7 Sanctions Award

Appellate Court Did De Novo Review On Most Issues.

            In a fairly lengthy decision, the Fifth District basically reversed trial court determinations on fees and costs issues in Johnson v. Johnson, Case No. F073191 (5^th Dist. Feb. 26, 2018) (unpublished), involving a dispute between siblings arising out of their real estate partnership where the partnership agreement stated the prevailing party was entitled to recover attorney’s fees “actually expended” if “litigation is instituted with respect to any matter regarding the covenants in this Agreement.”  The lower court determined the sister was the prevailing party, awarding her costs and about $135,000 in attorney’s fees.  Brother appealed, arguing he was the prevailing party because the jury awarded him $12,822 on a breach of contract claim despite the fact sister won a defense verdict on three tort claims submitted to the jury.

            First, with respect to the costs award, brother was indeed the “prevailing party” under CCP § 1032 because he obtained a net monetary recovery such that sister was erroneously awarded costs and he was erroneously not awarded costs.

            Second, on the question of attorney’s fees, the appellate court did agree that all the four causes of action submitted to the jury, both the tort and contract claims, were subject to fee recovery, but under CCP § 1021 rather than Civil Code § 1717.  With this in mind, brother made a sufficient legal showing on appeal that he actually prevailed because he was awarded contractual damages by the jury and he achieved prelitigation objections with a financial benefit to him of over $300,000.  So, a remand was in order to gauge if he did prevail given the reviewing court’s interpretation of the fees clause.  (On this issue, the appellate court determined that “actually expended” meant amounts actually paid by the litigant.)

            Finally, on the sanctions issue, the trial court did not provide the mandatory 21-day safe harbor notice required in its OSC order and did not issue as OSC describing the specific conduct to be potentially sanctioned with required specificity.

            Brother did well to appeal, to say the least. 

Fee Clause Interpretation/Section 1717: Fifth District, In Split Decision, Decides That Permissive Fee Clause Is Enforceable By Its Terms, With Section 1717 Not Applying

Dissent Argues That Section 1717 Does Have Precedence In This Situation, So That Fees To Prevailing Party Should Be Determined Upon A Remand.

            In City of Dinuba v. Universal Biopharma Research Institute, Inc., Case No. F072497 (5^th Dist. Feb. 20, 2018) (unpublished), City of Dinuba filed an unlawful detainer action against two defendants, although the Biopharma defendant was not named as the tenant under the commercial lease.  A jury found that Biopharma was a not a party to the lease and not liable to City.  Biopharma moved for attorney’s fees as prevailing party (no one disputed this) to the tune of about $197,000 under a fees clause, but one which was “permissive” in nature, to wit: “In the event of any proceedings brought by either party against the other under this lease, the prevailing party may be entitled to recover the fees of their attorneys in such action or proceedings for such amounts as may be adjudged reasonable attorney’s fees.”  The trial court, interpreting this clause as discretionary, denied fee recovery, prompting an appeal by Biopharma.

            The Fifth District affirmed, but in a 2-1 decision drawing a lengthy dissent by Justice Meehan.

            The majority concluded that CCP § 1021 allows the parties to craft their own conditions for an award of attorney’s fees such that Civil Code section 1717 does not apply to discretionary attorney’s fees so as to lead to a different result.  Put another way, the majority believed section 1717 applied only to mandatory fee clauses.

            Justice Meehan did not buy the majority reasoning in her dissent.  In an extended discussion of jurisprudence under section 1717, in a situation she characterized as being a “case of first impression,” Justice Meehan concluded that (1) CCP § 1021 cannot override Civil Code section even for “permissive” fee clauses, and (2) the “may” language in the clause could be interpreted to only confirm that it does not apply to non-contract situations (the law under section 1717).  She did argue that the “may” language was void and had to be replaced with the statutory terms required by section 1717.  Here is her policy-based, bottom line reasoning:  “Without the mandatory application of section 1717 to all contractual fees clauses to enforce the contract, parties are free to enter into unilateral agreements, craft their own definition of prevailing party and create their own requirements for reasonableness.  Courts have no clear standards independent of section 1717 by which to resolve disputes on those matters.  The statute’s goal of uniform and evenhanded treatment of attorney fees awards will be defeated and those in unequal bargaining positions will again be exposed to the deceptive and oppressive tactics the statute was designed to eliminate.  This result is unwarranted ….”

(Dissenting Slip Op. at 4.)  She would have remanded the matter to allow the trial judge to fix a reasonable fee award in Biopharma’s favor.

Fee Clause Interpretation: Trial Judge’s Award Of Fees Based On Promissory Note Fees Clause Was Erroneous

$53,637 Contractual Fees Award Went POOF! On Appeal.

            In Clark v. Delay, Case No. D072856 (4^th Dist., Div. 1 Jan. 19, 2018) (unpublished), plaintiff filed suit over a partnership dissolution dispute mainly involving the claim that plaintiff did not get insurance proceeds under a buy-sell type of alleged oral arrangement.  Among other documents, there was Note carried back by defendant so that plaintiff could purchase defendant/her husband’s partnership interest.  The Note had the following fee provision:  “Should suit be commenced or an attorney employed to enforce the payment of this note, I agree to pay such additional sum as the court may adjudge reasonable as attorney’s fees in said suit.”  Defendant ultimately defensed plaintiff’s claims hinged on the lower court’s determination that he failed to present sufficient evidence about an oral modification to dissolution documents relating to the insurance issue.  The trial judge then awarded Defendant $53,637 in attorney’s fees under the note fees clause.

            The fee award got reversed as a matter of law and stricken from the judgment on appeal.

            Although assuming that the note was incorporated by reference into the main dissolution agreement, the problem for the defense was that the dispute did not involve enforcement of payment obligations under the note but ancillary claims under which plaintiff would not have been able to recover fees even had he won.  The narrowness of the clause steered the determination in this appellate opinion. 

Fee Clause Interpretation: Fee Clauses Only Allowing Recovery For Arbitration Related Work Did Not Give Entitlement To Fees For Trial Work Only

Fee Clause Was Unambiguous In Nature.

            After a lot of trial activity (including fraud claims adjudicated against a defendant in a bench trial), the successful plaintiff obtained an attorney’s fees award based on an LLC operating agreement provision allowing for fees limited to “reimbursement of attorney fees, costs and expenses incurred in connection with the arbitration.”  Defendant rightfully appealed fee recovery based on the clause only limiting work to an arbitration, which did not occur.  The appellate court agreed, reversing the fee recovery as a matter of law in Moladina v. Naimi, Case No. B261689 (2d Dist., Div. 5 Jan. 10, 2018) (unpublished). 

Construction/Fee Clause Interpretation/Section 1717: Fees Clause In Masonry Subcontractor-Material Supplier Contract Did Not Trigger Third Party Beneficiary Exposure Against Real Property Owners Who Did Not Prevail Against Material Supplier

Specific Breadth Of Clause Was Dispositive.

            Prince v. Thompson Building Materials, Case No. B280813 (2d Dist., Div. 2 Jan. 9, 2018) (unpublished) involved a situation where real property owners sued a material supplier to enforce contractual warranties under a third-party beneficiary against their masonry subcontractor.  Ultimately, owners lost and material supplier sought to recoup Civil Code section 1717 based on a fees clause in the contract with its masonry subcontractor.  The trial judge denied the fees request, a determination affirmed on appeal.

            Material supplier appealed on the third-party beneficiary theory, based on the fact real property owners were attempting to enforce contractual warranties in a contract so that they should have to bear the burden of so doing through the fees clause in the same contract.  With respect to the third-party beneficiary legal theory, the appeal pitted a “specific intent” test in Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4^th 671, 680-681 (2000) against a “sufficient nexus” test articulated in Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4^th 375, 380 (1994).  The problem here for the appellate court in Prince was that it could not find that these decisions were at odds given the need to examine the specific language of the contract fees clause at issue.  When that was done, the language only applied between masonry subcontractor and material supplier and did not give specific rights to third parties (containing “either party” rather than “any party” language).  Fee denial affirmed. 

Fee Clause Interpretation: Narrow LP Agreement Fee Clause Did Not Allow For Tort Recovery Against Unsuccessful Investor Plaintiff

$657,000 Fee Award For Defense In Investment Dispute Went Away Based On Interpretation Of Fees Clause. 

            As we have posted many time under our category “Fee Clause Interpretation,” a fees clause in many an agreement may require an appellate court to reverse a significant fee recovery where the clause in narrow in scope.

            Stella v. Asset Management Consultants, Inc., Case No. B276686 (2d Dist., Div. 7 Jan. 8, 2018) (unpublished) is just such a situation. 

            There, plaintiff lost a fraud investment dispute against defendants, who sought to recover fees under a limited partnership agreement fees clause relating to “any action or proceeding between the parties seeking enforcement of any of the terms and provisions of this Agreement ….”  After ultimately prevailing on the tort-based claims, the trial judge awarded the defense $657,000 in attorney’s fees based on the LP Agreement fees clause.

            That determination was reversed as a matter of law.  The main problem was that this clause only authorized fees in connection with contract claims, not the tort claims which were at issue.  Although recognizing that prosecuting an affirmative defense cannot give rise to fee recovery (see Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 3 Cal.5^th 744 (2017) [our Leading Case No. 22]), the defense tried to make a creative argument that certain earlier procedural steps—such as prior motions to enforce the dispute resolution provision of the LP Agreement and a successful statute-of-limitations demurrer—were “enforcement” steps for purposes of the fees clause.  The appellate court did not embrace this argument.  “Action or proceeding” for fee clause purposes, generally, refers to the litigation as a whole rather than just finite steps along the way.  Fee determination reversed as a legal matter.

Deeds Of Trust, Fee Clause Interpretation, Section 1717: Attorney’s Fee Recovery Not Available To Lenders/Affiliates Based On Vague Provisions In Note And Deed Of Trust

Decision Should Have Lenders Look At Lending Paperwork To Make Sure There Is A True “Prevailing Party” Clause.

            In Luca v. Deutsche Bank National Trust Co., Case No. G053408 (4^th Dist., Div. 3 Jan. 5, 2018) (unpublished), borrowers lost a lawsuit attempting to void the promissory note and deed of trust against lenders/affiliates based on a defense summary judgment motion, a determination affirmed in a separate appellate decision.  The trial judge denied the defense request for attorney’s fees under four separate note or deed of trust provisions.  The 4/3 DCA, in a 3-0 decision authored by Justice Ikola, agreed with the fee denial.

            The problem was that defendants relied on four separate provisions scattered through the note and deed of trust, but none of them were true “prevailing party” fee clauses triggering the application of Civil Code section 1717.  Rather, they dealt with third-party situations, only allowed the lenders to “add” the fees to the debt, allowed the lenders to apply any fees against trustee sale proceeds, or allowed the lender “to be paid back.”  Here is the crux of the appellate court’s reasoning on fee entitlement: “Ultimately, Civil Code section 1717 requires a contract to ‘specifically’ provide for attorney fees. There are many challenges facing attorneys drafting transactional documents. But in general, a specific attorney fee provision is not one of those challenges. In most cases, it can be accomplished in a single sentence, and a specific citation to Civil Code section 1717, though not required, makes the parties’ intent abundantly clear. For that reason, we are not inclined to indulge vague fee provisions like those relied on here.”

            Lenders may want to review their paperwork, in light of this decision, and supplement their documents with a more precise “prevailing party” fees clause. 

Appealability, Equity, Fee Clause Interpretation: Four California Intermediate Appellate Courts Address Diverse Attorney’s Fees Issues

Galindo v. Polakoff, Case No. D071555 (4^th Dist., Div. 1 Nov. 29, 2017) (Unpublished)—Equity/Offsets.

            In this one, the Court of Appeal affirmed an offset determination by the trial judge where it did grant fees to one party prevailing but even after an offset conclusion was reached.  Must reading for practitioners facing offset issues under Code of Civil Procedure section 431.70, showing that a merits offset may still not determine who ultimately prevailed—“There is nothing in section 431.70 that supports [appellant’s] interpretation to equate a subsequent prevailing party attorney fees award with the relief on the underlying dispute, through allowing a setoff amount claimed pursuant to cross-demands.”  (Slip Op., at p. 25.)

R.W.L. Enterprises v. Oldcastle, Inc., Case No. D070189 (4^th Dist., Div. 1 Nov. 29, 2017) —Equity/Contractual Integration.

            This second case really came down to whether a subsequent credit application, entered into about nine years later (with a potential attorney’s fees clause), should be interpreted as integrated (or, in essence, incorporated by reference) into an earlier contract.  The trial judge bought into the integration argument, awarding $180,120 to a party successfully defending a breach of contract claim.  This result got reversed as a matter of law.  There was too much of a temporal gap to allow for an integration analysis, whether under Civil Code section 1717 or the UCC.  There is a great discussion for practitioners on the “battle of the forms” issue and the extent to which Boyd v. Oscar Fisher Co., 210 Cal.App.3d 368 (1989) should apply under the circumstances (or is still good law on certain aspects of its reasoning).

Throckmorton v. Soria, Case No. A144748 (1^st Dist., Div. 2 Nov. 29, 2017) (Unpublished)—Appealability.

            The third decision is a case where—alas!—the appellant failed to appeal from a separately appealable fee order and failed to provide motion papers/fee hearing reporter’s transcript.  The appeal was doomed for two independent reasons—failure to appeal a separate appealable order and failure to provide an adequate record.

2437 Piedmont Avenue, LLC v. Schwartz, Case No. A150274 (1^st Dist., Div. 2 Nov. 29, 2017) (Unpublished)—Fee Clause Interpretation.

            This last one is where an owner/landlord sued for fraud, but dismissed its action, with tenant then moving for attorney’s fees under a lease fees clause.  The trial court denied the fee request, which was sustained on review.  The problem was that the tort claims were not brought to “enforce” the lease such that the narrow fees clause language did not provide a basis for fee entitlement.  

Fee Clause Interpretation/Section 1717: Significant Fee Awards Affirmed In Favor Of Lenders And Prevailing Party In Easement Dispute

Courts Focused On Plain Meaning Of Fee Clauses, Primarily.

Lawson v. Cal Western Reconveyance Corp., Case No. A142956 (1^st Dist., Div. 4 Nov. 20, 2017) (Unpublished).

            Here, after two banks prevailed in a nonjudicial foreclosure challenge by borrowers, the trial judge awarded both $ 137,150 in attorney’s fees under note and trust deed fee clauses.  That award was sustained on appeal.  After observing that Civil Code section 1717 only makes non-mutual clauses mutual but does not otherwise impact the interpretation of the fee clauses themselves, it found that judicial admissions, the agency relationship between one bank and the other, and breadth of the trust deed language all supported a conclusion that the fee award was proper.  Also, a $250 hourly rate was found reasonable for the Marin County area and San Francisco Bay area generally.

DIII Properties, LLC v. EDF Renewable Energy, Inc., Case No. A149217 (1^st Dist., Div. 5 Nov. 20, 2017) (Unpublished).

            In this second one, a prevailing party in an easement dispute (in a multi-count complaint including a claim for declaratory relief), was awarded $158,616.90 in fees based on a fees clause in an easement agreement clarified by a subsequent letter agreement.  Although arguing recovery was only for trespass (a tort not within the reach of section 1717), the appellate court—as did the trial judge—disagreed based on the scope of the pleadings, especially the declaratory relief claim which did sound “on the contract.”

Fee Clause Interpretation/Settlement: Settlement Agreement’s Carve-Out Language And Broad “Related To” Language Allowed For Fee Recovery In General Contractor – Subcontractor Dispute

 

Need For Precise Draftsmanship Demonstrated By This Case.

            In Global Modular, Inc. v. Kadena Pacific, Inc., Case No. E063551 (4^th Dist., Div. 2 Sept. 8, 2017) (published), general contractor, subcontractor, and subcontractor’s general liability carrier were drawn into a dispute about water damage to a construction site.  A partial settlement was reached by all parties, with the trial judge eventually determining that general contractor was entitled to $360,000 in fees from subcontractor pursuant to the settlement agreement, finding the releases in the agreement did not prevent fee recovery.  The appellate court affirmed the fee award.  Subcontractor did agree to pay general contractor for activities in “enforcing any provision or obligation arising under” the contract, which was involved in the litigation.  The carve-out provision in the releases further cemented fee recovery, given that claims were not released for the project that were “related to” damages covered under the insurance policies.  Finally, the “related to” language did cover property damages, including attorney’s fees pursued in relation to those damages.  Obviously, precise draftsmanship was needed to provide a different result.

Assignment/Fee Clause Interpretation/Section 1717: Bankruptcy Trustee’s Assignment Of Sublease Rights Invoked Fee Clauses To Prevailing Party

Landlord Did Prevail, Entitled To Fee Recovery Based On Breadth Of Fees Clause.

            Bush-Grant, LLC v. Hotel Astoria, Inc., Case No. A147456 (1^st Dist., Div. 4 Aug. 29, 2017) (unpublished) demonstrates how a tort claim can still be compensable under a broad fees clause, even if Civil Code section 1717 is inapplicable because the action is not “on the contract.”

            What occurred in this case was that an individual tenant with a long-term commercial lease subleased to tenant’s corporate affiliate and later assigned the sublease to another LLC affiliate, with individual filing for bankruptcy and with the bankruptcy court determining that the LLC’s interest in the lease was property of the bankruptcy estate needing to be relinquished to the bankruptcy trustee.  Eventually, the bankruptcy trustee entered into any agreement with landlord by which individual tenant’s sublease rights were assigned to landlord.   However, subtenant “held over” so as to prompt landlord to file a successful unlawful detainer action, obtaining contractual attorney’s fees under broad lease fees clauses.   Subtenant’s appeal of the fees award failed.

            Based on the bankruptcy trustee’s assignment of rights to landlord, landlord stepped into sublessor’s shoes so as to enforce the sublease provisions inclusive of the sublease fees clause.  Nevertheless, the appellate court had to classify the nature of the unlawful detainer, namely, was it based on contract or tort.  It concluded that the action was a tortious “hold over,” which meant fee recovery could not occur under Civil Code section 1717.

            But this nusance did not matter.   The fee clause was broad in nature, covering “any suit against Lessee … for recovery of possession of the demised premises.”  Given this broad provision, fee recovery was allowable in the unlawful detainer action under Code of Civil Procedure section 1021, which provides the parties have the right to enter into agreements for the award of fees in litigation on their own terms,  covering actions in contract, tort, or equity. 

Deadlines, Fee Clause Interpretation, Reasonableness Of Fees: $210,000 Contractual Fees Award Affirmed On Appeal In Contentious Foreclosure/Eviction Case

 

Technical Challenges Are Rejected At Appellate Level.

            In Coastline RE Holdings Corp. v. Brillouet, Case No. B282382 (2d Dist., Div. 6 Aug. 24, 2017) (unpublished), owners/residential borrowers had their house foreclosed (after quitclaiming the property to various entities and filing bankruptcies which were dismissed) and then lost an eviction action by the buyer who obtained the property at the nonjudicial foreclosure sale.  The buyer designated the unlawful detainer action as an unlimited civil action, but the superior court clerk mistakenly designated the case as a limited case—an error eventually corrected along the way.  Buyer eventually gained possession of the property, was awarded damages for 10 months of lost rent, and was awarded $210,000 in contractual attorney’s fees based on a fees provision in the deed of trust.  Losing owners/borrowers appealed, with no success.

            Based on the argument that this was a limited case (which was rejected by the appellate court), appellants argued that the fee motion was untimely based on the 30-day deadline to file fee motions in limited cases.  The 2/6 DCA disagreed, finding this was an unlimited case and, beyond that, no notice of entry of judgment was served such that the fees motion was timely served 90 days after entry of judgment even under limited case rules.

            There was a contractual basis for the fee award, based on the deed of trust fees provision, which was violated when appellants remained in possession after foreclosure. 

            The amount of the fee award was sustained on appeal, given that (1) appellants did not make specific objections to fee items before the trial court, and (2) appellants did not disprove that the fees were not reasonably related to the unlawful detainer action vigorously contested by them below.

Allocation/Fee Clause Interpretation: One Prevailing Defendant Entitled To Some Fee Recovery Under Promissory Note Fees Clause

However, That Defendant’s Assertion Of A Contract As An Affirmative Defense Required Some Paring Back of Fees Under Recent Mountain Air Decisio

            On August 1, 2017, we posted on Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, 2017 WL 3222520 (Cal. Supreme Court 2017).  A panel of the 2/4 DCA delayed submission of a matter based on the pendency of Mountain Air and has now applied it in Morrison v. Morrison, Case No. B269435 (2d Dist., Div. 4 Aug. 23, 2017) (unpublished).

            The case involved a fairly nasty dispute between two children, a grandson, and companies associated with them relating to adult bookstore companies left behind by the father of the children and grandfather of grandson, complete with one of the children apparently entering into transactions to avoid tax evasion repercussions.  After a fairly complex bench trial, plaintiff Michael and a one of the companies basically lost all claims, but the appellate court reversed on certain claims and remanded to see that they be decided on the merits.  They were, with plaintiff Michael and the company still losing except for one claim relating to a defendant entity.  Defendant Mindey, who prevailed on all claims, moved to recover $96,273.83 in attorney’s fees under Civil Code section 1717 based on fees clauses in a promissory note and a stock repurchase agreement (SRA), although the SRA was raised as an affirmative defense to Michael’s claims.  The trial judge awarded Mindey $54,402 for promissory note work (not apportioning any due to the overlapping nature of the issues with other claims) and $14,897 for work relating to the SRA defense work (for a total award of $69,299). 

            The appellate court affirmed the first component, but reversed the $14,897 component. 

            The first component was justified based on the promissory note fees clause, with no apportionment necessary because the issues in all causes of action overlapped.  However, the fee recovery based upon enforcement of contract in defense was foreclosed by Mountain Air given that the SRA fees clause only encompassed fee recovery “in any legal action or other proceeding brought by either party to enforce or interpret the terms of the Agreement”—which did not cover affirmative defense work.  That being said, the partial affirmance and reversal did put to rest the fee battle between some of the parties.